6 Guidelines for Records Retention: Keep It or Toss It?

While setting up records retention guidelines with my clients’ one of the
first questions everyone asks is “how do I know if I need to keep it”? The
following guidelines will explain how long you are required to retain legal
and financial documents.

A Quick Note Before We Start

The yearly “file purge” is a sensitive (and somewhat scary) issue for many,
because there could be harsh consequences if you toss something that you should
have kept. These are general-purpose records retention guidelines. If you
have unusual or extenuating circumstances in your life please check with your
accountant or attorney before pitching any important legal, business, or financial
paperwork.

Records Retention Guideline # 1: Some items should never be thrown out

This is because these items would be hard to replace and you may be asked
to provide them later in life. I suggest storing these “permanent records”
in an expanding file or wallet – preferably in a fire safe or safe deposit
box:

Income tax returns and payment checks

Important correspondence

Legal documents

Vital records (birth / death / marriage / divorce / adoption / etc.)

Retirement and pension records

Investment trade confirmations and statements that indicate buying and
selling

Businesses are held accountable to a much stricter set of rules than individuals.
To complicate matters further, many industries (healthcare, insurance, law,
etc.) set their own legal standards, so be sure to ask your professional association
for their policies. In addition to the items listed above, all companies should
create permanent files for:

Records Retention Guideline #3: Keep tax records for 6 years

The IRS may go back 6 years to audit your tax returns for errors or incorrectly
claimed deductions – so it’s important that you keep all tax-related documents
for that length of time, including:

Bank records

Personnel and payroll records

Purchase and sale records

Travel and entertainment records

Vendor invoices

Settled accident claims

Mortgages / deeds / leases on sold property

Records on sold stocks and bonds

Records Retention Guideline #4: Keep everyday paperwork for 3 years

It’s rare that anyone is going to want to see an electric bill or credit
card statement dating back more than a year. But you may choose to keep the
following NON-TAX-RELATED items for up to 3 years for internal use:

Sales receipts (keep for life of warranty or life of the item on large
purchases)

Warranties and instructions (keep for life of product)

Other bills (keep until the payment verified on the next bill)

Records Retention Guideline # 6: Organization is valuable

These documents can be removed from your active filing system once the current
year has passed. Organize them using color-coded file folders or wallets for
each category of paperwork. Use archive quality, acid-free or antimicrobial
filing supplies to prevent damage to the files. Store your archived files
by year in banker’s boxes, with one label for the year and another showing
the destruct date – then each year, simply shred those items that have come
due. With these records retention guidelines file purging isn’t actually as
scary as it seems!